Selling investments to meet mortgage payment

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orange_futures
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Selling investments to meet mortgage payment

Post by orange_futures »

In short: Is it a good idea to buy a house when you know you'd have to sell your investments to meet the mortgage payment?

I'm in my early 40s and lived a very frugal life, always been renting. My living situation will soon be changing and I have to make a decision:
1. Continue renting, but I'll most likely have to move to a new place which'll be a downgrade (current place has many benefits, including cheap rent)
2. Buy the condo I'm currently renting, which I'd be able to afford with my incoming cash flow from my job (i.e. I would not have to touch my investments). However, the place has its faults and is not ideal for my longer term life goals.
3. Buy a house, which would be 2.5-3.5x the price (HCOL area). This is what I would really want and it would allow me to pursue some other life goals that I just can't do in a condo. Houses in my area would pretty much start at $1M, maybe $1.5M for something decent. Not really looking for a fixer upper.

My portfolio has done exceptionally well over the last 5 years. So much so that I'm now actually pondering buying a house, even with the current insane prices and high interest rates. It's mainly the standard index funds talked about here with a few sizeable stock picks over the years which worked out very well.

Debt: $0 and expenses are very low right now.
Investment Account: $1.5M (adding to it monthly via what's leftover from my paycheck)
Retirement accounts: $500k
Over the last two years, the value of my accounts is appreciating at about 3x-4x what my mortgage payment would be. About 2.5x to 3x over last 4.5yrs.

My frugal upbringing has instilled a bit of an aversion to spending large sums of money so I'm really looking for some objective guidance here.

From a financial perspective, how good or bad of an idea would it be to buy a house with my financial situation? I'd obviously have to sell a chunk for the down payment anyway. Is continually selling a bit each month to pay the mortgage a good or bad idea? Would have to deal with capital gains tax and all the other costs associated with maintaining a house.

From a personal/lifestyle perspective, I do feel a bit bottlenecked by my current place (or any apartment/condo) and I do think a house would open me up to be able to do more things. I may have taken the downsides of lifestyle creep a bit too much to heart, and haven't really spent much of my money on myself. I don't know if this whole question is stupid with the size of my cash account or if I'm right in doubting whether I can actually afford this. I'm in my early 40s so I'm not getting any younger. Housing market, interest rates, and the political climate are making me second guess whether spending any money is a good idea right now.

Appreciate any advice/thoughts.
Last edited by orange_futures on Sun Feb 02, 2025 7:38 pm, edited 1 time in total.
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CAsage
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Re: Selling investments to meet mortgage payment

Post by CAsage »

Specifically, how much are you thinking of liquidating to put as a down payment, and how much mortgage can you afford? Lenders assume that you will be paying the mortgage and property taxes out of current income, so unclear on why you think you need to take out money each month - maybe just put more down. And you need to very carefully calculate how much you will be paying for capital gains taxes when you cash out, assuming this is a brokerage account. You are too young to withdraw from any IRA.
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grabiner
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Re: Selling investments to meet mortgage payment

Post by grabiner »

It's probably not a good idea to have a mortgage which will require you to sell stocks to make the monthly payments, as you will have the extra cost of capital-gains tax every time you sell, and the risk that you won't be able to recover from a stock-market crash because you are depleting your portfolio. This is another version of the general principle that money you will need in the short term should not be in the stock market.

However, it is a fine idea to sell more investments now so that you can make a larger down payment; this will make the monthly payments easier to manage from your cash flow. In particular, limiting the mortgage to $750K is desirable, as this eliminates non-deductible interest.

Another alternative would be to pay cash for the house, selling most or all of your taxable investments. This would lead to a big tax bill, but it would give you negotiating power in buying the house, and you could use the reduced cost of living to rebuilt the taxable account.

As a separate note, if you have bonds in your retirement plan, you can avoid some of the reduction in your stock allocation when you buy the house; you can move the retirement funds from bonds to stock.
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chassis
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Re: Selling investments to meet mortgage payment

Post by chassis »

orange_futures wrote: Sun Feb 02, 2025 7:06 pm In short: Is it a good idea to buy a house when you know you'd have to sell your investments to meet the mortgage payment?

I'm in my early 40s and lived a very frugal life, always been renting. My living situation will soon be changing and I have to make a decision:
1. Continue renting, but I'll most likely have to move to a new place which'll be a downgrade (current place has many benefits, including cheap rent)
2. Buy the condo I'm currently renting, which I'd be able to afford with my incoming cash flow from my job (i.e. I would not have to touch my investments). However, the place has its faults and is not ideal for my longer term life goals.
3. Buy a house, which would be 2.5-3.5x the price (HCOL area). This is what I would really want and it would allow me to pursue some other life goals that I just can't do in a condo. Houses in my area would pretty much start at $1M, maybe $1.5M for something decent. Not really looking for a fixer upper.

My portfolio has done exceptionally well over the last 5 years. So much so that I'm now actually pondering buying a house, even with the current insane prices and high interest rates. It's mainly the standard index funds talked about here with a few sizeable stock picks over the years which worked out very well.

Debt: $0 and expenses are very low right now.
Investment Account: $1.5M (adding to it monthly via what's leftover from my paycheck)
Retirement accounts: $500k
Over the last two years, the value of my accounts is appreciating at about 3x-4x what my mortgage payment would be. About 2.5x to 3x over last 4.5yrs.

My frugal upbringing has instilled a bit of an aversion to spending large sums of money so I'm really looking for some objective guidance here.

From a financial perspective, how good or bad of an idea would it be to buy a house with my financial situation? I'd obviously have to sell a chunk for the down payment anyway. Is continually selling a bit each month to pay the mortgage a good or bad idea? Would have to deal with capital gains tax and all the other costs associated with maintaining a house.

From a personal/lifestyle perspective, I do feel a bit bottlenecked by my current place (or any apartment/condo) and I do think a house would open me up to be able to do more things. I may have taken the downsides of lifestyle creep a bit too much to heart, and haven't really spent much of my money on myself. I don't know if this whole question is stupid with the size of my cash account or if I'm right in doubting whether I can actually afford this. I'm in my early 40s so I'm not getting any younger. Housing market, interest rates, and the political climate are making me second guess whether spending any money is a good idea right now.

Appreciate any advice/thoughts.
The strategy is unconventional, but in theory will work. Watch out for equity market fluctuations and the effect the mortgage payment withdrawals would have on a portfolio reduced by market pullback. I would not do this, but you might.
snowday2022
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Re: Selling investments to meet mortgage payment

Post by snowday2022 »

Before mortgages were common, this was how people bought homes. More info on income, job stability, expenses, and carrying costs of a 1-1.5M home would be useful.
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Re: Selling investments to meet mortgage payment

Post by KlangFool »

OP,

1) What is your gross income?

2) What is your annual savings/investment?

3) What is your current annual expense?

4) What is your current rent?

Without knowing all those information, we do not know whether you can afford the house or not.

As far as I can tell, you cannot afford the 1.5M house with your current income. And, you are not willing to sell all your investment to pay cash for the 1.5M house. So, how could you afford the house?

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quantAndHold
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Re: Selling investments to meet mortgage payment

Post by quantAndHold »

Not knowing your income, it’s hard to give advice, but what about putting down a large enough down payment that you can afford the mortgage just with your income. For one thing, I can’t imagine a lender would go for a deal like that.
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Re: Selling investments to meet mortgage payment

Post by mchampse »

You could buy your current condo and then look to buying a single family home in the future when your income is enough to sustain the monthly payment.
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orange_futures
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Re: Selling investments to meet mortgage payment

Post by orange_futures »

CAsage wrote: Sun Feb 02, 2025 7:26 pm Specifically, how much are you thinking of liquidating to put as a down payment, and how much mortgage can you afford? Lenders assume that you will be paying the mortgage and property taxes out of current income.
I guess that's my question as well. The market has been very favorable so I'm going by the idea of keeping as much money in it as possible. So minimum down payment and then sell whatever I need to make the payments. Do lenders take into account the size of your portfolio when approving loans?

grabiner wrote: Sun Feb 02, 2025 8:16 pm Another alternative would be to pay cash for the house, selling most or all of your taxable investments. This would lead to a big tax bill, but it would give you negotiating power in buying the house, and you could use the reduced cost of living to rebuilt the taxable account.
Building on my answer above (which I'm not saying is the correct course of action, trying to figure out what is), I could pay for the house in cash or do a huge down payment but the stock market has just been more favorable so I'm seeing if a strategy of keeping as much in the market can work or is even recommended.
KlangFool wrote: Sun Feb 02, 2025 9:43 pm OP,

1) What is your gross income?

2) What is your annual savings/investment?

3) What is your current annual expense?

4) What is your current rent?

Without knowing all those information, we do not know whether you can afford the house or not.

As far as I can tell, you cannot afford the 1.5M house with your current income. And, you are not willing to sell all your investment to pay cash for the 1.5M house. So, how could you afford the house?

KlangFool
1. 135k
2. Maxing 401k & Roth IRA. Putting about $3k/mo into regular investment account. So About $66k.
3. ~$38k
4. $1400/mo

My idea was to sell enough for a down payment and then sell monthly to meet the payment. Bad idea?

mchampse wrote: Sun Feb 02, 2025 10:03 pm You could buy your current condo and then look to buying a single family home in the future when your income is enough to sustain the monthly payment.
I don't anticipate *just* income from my job to be able to pay for a single family house any time soon. So what's the strategy/formula to determine how much house I can afford considering BOTH the income from my job and the size of my regular investment (non-retirement) account? Theoretically, I could just sell most/all of my investment account and buy a house so not not worry about having a mortgage, but I'd just rather let as much of my money stay in the market as possible. Bad idea? Is there a balance here?
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Re: Selling investments to meet mortgage payment

Post by cchrissyy »

orange_futures wrote: Sun Feb 02, 2025 10:30 pm I don't anticipate *just* income from my job to be able to pay for a single family house any time soon. So what's the strategy/formula to determine how much house I can afford considering BOTH the income from my job and the size of my regular investment (non-retirement) account? Theoretically, I could just sell most/all of my investment account and buy a house so not not worry about having a mortgage, but I'd just rather let as much of my money stay in the market as possible. Bad idea? Is there a balance here?
your limiting factor is what the bank will approve you for. once you provide them your income documents, they will calculate the most they will lend you and what the monthly payment is. subtract that mortgage size from the purchase price to learn how much you will have to put down.
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orange_futures
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Re: Selling investments to meet mortgage payment

Post by orange_futures »

cchrissyy wrote: Sun Feb 02, 2025 10:40 pm your limiting factor is what the bank will approve you for. once you provide them your income documents, they will calculate the most they will lend you and what the monthly payment is. subtract that mortgage size from the purchase price to learn how much you will have to put down.
Would banks take the size of my investment portfolio into account when deciding to approve a loan? Or would they pretty much require me to sell my positions and have cash on hand?
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Re: Selling investments to meet mortgage payment

Post by cchrissyy »

orange_futures wrote: Sun Feb 02, 2025 10:47 pm
cchrissyy wrote: Sun Feb 02, 2025 10:40 pm your limiting factor is what the bank will approve you for. once you provide them your income documents, they will calculate the most they will lend you and what the monthly payment is. subtract that mortgage size from the purchase price to learn how much you will have to put down.
Would banks take the size of my investment portfolio into account when deciding to approve a loan? Or would they pretty much require me to sell my positions and have cash on hand?
they won't be interested in its size except that it explains why you have a down payment, and closing costs, and a few months of ability to make the payments. as far as the ongoing obligation, it will be a % of your job income. you should apply for a preaproval, or talk to a mortgage broker, to understand better how this will work. it's not the way you were picturing it. you can still by the house you want. i just expect you'll have to put down a lot of money, perhaps half the price.
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Re: Selling investments to meet mortgage payment

Post by gotoparks »

Your strategy won't work if you want a mortgage. They look at income to qualify you, not your investments. The rule of thumb to figure out if you can qualify is 3X your gross income. If you make 100K you should be looking for a house in the 300K range. I live in an expensive area and put down 50% to make my payments reasonable. You probably should be looking at a townhouse or keep renting.
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Re: Selling investments to meet mortgage payment

Post by Jack FFR1846 »

No bank will give you a mortgage for a house over about $600k if you're putting down $200k. Can you move to a lower cost of living area and get a job elsewhere? If you were somehow able to get a mortgage, paying out of your savings just to meet the mortgage is a bad idea. It means your retirement is tied to your house. With high prices and high interest rates, it's quite possible that housing prices have peaked and when you go to sell in the future, you'll lose money.
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Re: Selling investments to meet mortgage payment

Post by KlangFool »

orange_futures wrote: Sun Feb 02, 2025 10:30 pm [

1. 135k
2. Maxing 401k & Roth IRA. Putting about $3k/mo into regular investment account. So About $66k.
3. ~$38k
4. $1400/mo
Don't buy. Rent instead. Your investment income/return can pay the rent and you live for free essentially.

"Over the last two years, the value of my accounts is appreciating at about 3x-4x what my mortgage payment would be. About 2.5x to 3x over last 4.5yrs. "

With your portfolio appreciating at this level, why would you want to tie up your money in a house?

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Re: Selling investments to meet mortgage payment

Post by tashnewbie »

I wouldn't buy a $1M-$1.5MM house if my income was $135k, even if I did have $1.5MM in a taxable brokerage account. Not based on the details you've provided.

I would be looking to rent a better place even if it costs more than $1400 or buy a nicer condo that I could afford with my monthly cashflow.

You didn't specifically state why a house (SFH?) is necessary for you at this stage. It's your life and your money so do what you want.

But if you really want the $1.5MM house, then you should be prepared to make a sizeable down payment so that a lender will give you a mortgage for the balance. Do not plan on making monthly withdrawals to pay the mortgage.
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Re: Selling investments to meet mortgage payment

Post by Sandtrap »

orange_futures wrote: Sun Feb 02, 2025 7:06 pm In short: Is it a good idea to buy a house when you know you'd have to sell your investments to meet the mortgage payment?

I'm in my early 40s and lived a very frugal life, always been renting. My living situation will soon be changing and I have to make a decision:
1. Continue renting, but I'll most likely have to move to a new place which'll be a downgrade (current place has many benefits, including cheap rent)
2. Buy the condo I'm currently renting, which I'd be able to afford with my incoming cash flow from my job (i.e. I would not have to touch my investments). However, the place has its faults and is not ideal for my longer term life goals.
3. Buy a house, which would be 2.5-3.5x the price (HCOL area). This is what I would really want and it would allow me to pursue some other life goals that I just can't do in a condo. Houses in my area would pretty much start at $1M, maybe $1.5M for something decent. Not really looking for a fixer upper.

My portfolio has done exceptionally well over the last 5 years. So much so that I'm now actually pondering buying a house, even with the current insane prices and high interest rates. It's mainly the standard index funds talked about here with a few sizeable stock picks over the years which worked out very well.

Debt: $0 and expenses are very low right now.
Investment Account: $1.5M (adding to it monthly via what's leftover from my paycheck)
Retirement accounts: $500k
Over the last two years, the value of my accounts is appreciating at about 3x-4x what my mortgage payment would be. About 2.5x to 3x over last 4.5yrs.

My frugal upbringing has instilled a bit of an aversion to spending large sums of money so I'm really looking for some objective guidance here.

From a financial perspective, how good or bad of an idea would it be to buy a house with my financial situation? I'd obviously have to sell a chunk for the down payment anyway. Is continually selling a bit each month to pay the mortgage a good or bad idea? Would have to deal with capital gains tax and all the other costs associated with maintaining a house.

From a personal/lifestyle perspective, I do feel a bit bottlenecked by my current place (or any apartment/condo) and I do think a house would open me up to be able to do more things. I may have taken the downsides of lifestyle creep a bit too much to heart, and haven't really spent much of my money on myself. I don't know if this whole question is stupid with the size of my cash account or if I'm right in doubting whether I can actually afford this. I'm in my early 40s so I'm not getting any younger. Housing market, interest rates, and the political climate are making me second guess whether spending any money is a good idea right now.

Appreciate any advice/thoughts.
1
If "to meet the "mortgage payment" (monthly), not the down payment??
Please clarify.
1. Continue renting, but I'll most likely have to move to a new place which'll be a downgrade (current place has many benefits, including cheap rent)
then...continue renting.

j
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toddthebod
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Re: Selling investments to meet mortgage payment

Post by toddthebod »

orange_futures wrote: Sun Feb 02, 2025 7:06 pm In short: Is it a good idea to buy a house when you know you'd have to sell your investments to meet the mortgage payment?
No. Your plan makes no sense. You are borrowing money at 7% to invest in the market. That seems like a bad bet. If you really want the house, sell enough all at once to pay cash.

This will also potentially save on taxes. Consider the commutative property of multiplication, which says it doesn't matter if you pay taxes now or later if the rate is the same, except in your case, every additional dollar of growth in your brokerage account is entirely capital gains, but your basis is fixed. Your effective tax rate on selling stocks in this account will go up over time.
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Re: Selling investments to meet mortgage payment

Post by HooCares »

You don't have enough to buy a $1.5M house.

Assuming a 28%/36% conventional underwriting, assuming you have no other debt, the max monthly payment you will be approved for is $135k*.36=$48.6K/12 =$4,050/mo.

Let's say property taxes are 1.2% or $18k and home owners insurance is $3k that leaves you with $27,600 or $2,300/mo for the mortgage payment.

A $2,300 payment at 7% would qualify you for an about a $340k mortgage. So to buy a $1.5M house you'd need to put down $1.16M. You have a $1.5M taxable portfolio, but you say your accounts have appreciated dramatically so you'll owe capital gains taxes. You will have to essentially liquidate your entire taxable account to make this purchase, and have what I consider to be a very uncomfortable $4,050/mo payment on a $135k gross income and no taxable account, and only $500k in retirement in your early 40s. Your payment will go up every year as taxes and insurance go up, and you'll also be responsible for maintenance. You can potentially refinance in the future, but since your mortgage balance is low the savings will be low.

You say you have a $1400/month rent and you save $3000 into your taxable account every month.

$1400+$3000 =$4,400

$4,400 - $4,050 =$350

That $350 excess you have will have to cover the new maintenance and likely higher utility costs of your home. I don't see that happening so you'll be in the red.

If you purchase this house here is the situation you will find yourself in:

Early 40s
$135k income
$0-$100k in a taxable account
$500k in a retirement account
negative ongoing cash flow
Last edited by HooCares on Mon Feb 03, 2025 8:47 am, edited 1 time in total.
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Re: Selling investments to meet mortgage payment

Post by sailaway »

Have you looked at renting a SFH? In many markets that can make more sense than renting an apartment. Depends on what these mysterious life goals that require a SFH are.
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Re: Selling investments to meet mortgage payment

Post by CAsage »

Go talk to some lenders and get prequalified for a mortgage. See what they will give you. As others have said, they look at current verified income alone for the payment (and could include property taxes). Pity your life goals don't include some sweat equity in buying a fixer upper - that's a great way to get in cheaper and build up net worth. Also... the stock market returns in the last couple years are rare - things don't last. In my experience, there were big market crashes in 2000, 2008/9, 2020... Who knows what's next but you cannot count on this.
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Re: Selling investments to meet mortgage payment

Post by retire57 »

orange_futures wrote: Sun Feb 02, 2025 10:47 pm
cchrissyy wrote: Sun Feb 02, 2025 10:40 pm your limiting factor is what the bank will approve you for. once you provide them your income documents, they will calculate the most they will lend you and what the monthly payment is. subtract that mortgage size from the purchase price to learn how much you will have to put down.
Would banks take the size of my investment portfolio into account when deciding to approve a loan? Or would they pretty much require me to sell my positions and have cash on hand?
I recently received a mortgage approval based on my invested assets (plus my modest retirement income) with a 25% down payment. My age and stage-of-life is probably a factor. But it is possible to find a lender who will look beyond one's income,
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Re: Selling investments to meet mortgage payment

Post by KlangFool »

OP,

There are many options between renting at $1,400 per month and buy a 1.5M house. It is cheaper and better to pay a higher rent and rent a much better place. And, with your investment return from the money to be tied into the 1.5M house, you are essentially renting for free and much more. Even doubling and rent at 3K per month, it is still a better deal.

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Re: Selling investments to meet mortgage payment

Post by Mike Scott »

At your income level, you cannot afford a million+ house with either a mortgage or cash. Even if you cash out all of your investments, how will you pay insurance, property taxes and maintenance every year?
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orange_futures
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Re: Selling investments to meet mortgage payment

Post by orange_futures »

Thank you all for properly adjusting my expectations. I'm now leaning towards just buying the place I'm currently renting which has an asking price of ~$350k.

How does one determine if paying in cash vs a mortgage is better? Besides trying the impossible of guessing how the market will go the next few years.

$350k is a relatively small amount to take out of a 1.5M investment account. *If* the market continues as it did in 2024 then I'd make that back in maybe a year. Of course if the market tanks then it's better to spend the money now. More peace of mind with this decision.

However, I could afford not only a 30yr but 15yr mortgage just off my income. Including HOA/insurance/property tax. I'd still need to take out 20-25% for a down payment.

It doesn't sound like a mortgage is really worth the risk. I'd have way more cash flow from my job if I just bought it in cash now. Freeing me up to do other things without having to dip into my investments.

Sorry, thinking out loud a bit here. I think I just answered my own question while writing this post.
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Re: Selling investments to meet mortgage payment

Post by chassis »

orange_futures wrote: Tue Feb 04, 2025 12:46 am Thank you all for properly adjusting my expectations. I'm now leaning towards just buying the place I'm currently renting which has an asking price of ~$350k.

How does one determine if paying in cash vs a mortgage is better? Besides trying the impossible of guessing how the market will go the next few years.

$350k is a relatively small amount to take out of a 1.5M investment account. *If* the market continues as it did in 2024 then I'd make that back in maybe a year. Of course if the market tanks then it's better to spend the money now. More peace of mind with this decision.

However, I could afford not only a 30yr but 15yr mortgage just off my income. Including HOA/insurance/property tax. I'd still need to take out 20-25% for a down payment.

It doesn't sound like a mortgage is really worth the risk. I'd have way more cash flow from my job if I just bought it in cash now. Freeing me up to do other things without having to dip into my investments.

Sorry, thinking out loud a bit here. I think I just answered my own question while writing this post.
I prefer no debt. And I do not want real estate in my portfolio. This means renting is my choice.

The lesser of evils in my view is to pay cash for the residence. This is not the path to maximize net worth - using a mortgage helps you achieve that, in the scenario where you must choose between paying cash or using a mortgage.

In general residential real estate in most markets underperforms equities on a price basis. On a total return basis, it’s even worse, after maintenance, capital investment and mortgage interest are accounted for.

And there is a big difference in liquidity between equities and physical real estate. Stocks and cash for me.
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Re: Selling investments to meet mortgage payment

Post by grabiner »

orange_futures wrote: Tue Feb 04, 2025 12:46 am Thank you all for properly adjusting my expectations. I'm now leaning towards just buying the place I'm currently renting which has an asking price of ~$350k.

How does one determine if paying in cash vs a mortgage is better? Besides trying the impossible of guessing how the market will go the next few years.
View the mortgage as a negative bond. If you have a 6% mortgage, paying it down (or not taking it out) gives a risk-free return of 6%. In particular. if you have any bonds, you don't need to sell stock to take the mortgage You can sell taxable stock if your taxable account is all stock, and move an equal amount from bonds to stock in your 401(k); this is a net gain if the bonds earn less than the mortgage rate. If you don't have any bonds, then you don't have that auction, so the question is how much you value leverage; would you take out a margin loan at 6%?

Consider the after-tax mortgage rate. If you are married, almost none of the interest is deductible unless you donate a lot to charity, as $10K SALT plus the interest on the mortgage is less than the standard deduction. If you are single and pay state income tax, most of the interest on a $280K mortgage is deductible, which reduces the cost of holding it.

If your taxable account is all stock, the return is reduced by the capital-gains tax due on the stock sales. Note that this is a one-time cost; if you lose 5% of the value due to sales, but gain 2% per year because the mortgage rate is better than the rate on low-risk bonds, you will come out ahead after three years.
Wiki David Grabiner
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cchrissyy
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Re: Selling investments to meet mortgage payment

Post by cchrissyy »

$350k is a relatively small amount to take out of a 1.5M investment account.
that's what i would do. it feels like a small enough share. your portfolio will continue to grow and it sounds like you're committed to keep adding to it.

buying with cash saves you the initial cost and hassle of taking out the loan. that's a lot of paperwork and fees avoided.
and it saves you the cost of interest. these rates feel high enough to me i'd want to avoid them.
people might tell you to pay interest so you can deduct it on your taxes but, that is still a real expense and at this price point, i don't even know if you were going to have enough interest to itemize deductions anyway.
60-20-20 us-intl-bond
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